A Healthy Dose of ESG can Maximize Investment in Health
Published on 26 February 2019
Photo credit: AVA NoMa. Washington D.C. Photography by Sam Kittner for AvalonBay Communities, Inc.
Growing
evidence indicates that companies can do well by doing good, and that by
considering environmental, social, and governance factors, they can optimize
their performance and strengthen their bottom line. ESG investing is taking on
a new and influential role within the marketplace, expanding company
considerations into previously unexplored arenas. Most notably, in pursuit of
the triple bottom line of people, planet, and profit, a growing number of
investors are increasingly considering how the companies they finance impact
health, and how those impacts influence investment risk and return.
Connecting
ESG to Financial Return
In
this next wave of Socially Responsible Investing, or SRI, ESG criteria and
metrics have strengthened the connection between principled investing and
financial return. Thanks to ESG criteria and indices like GRESB, investors can
compare companies across a variety of factors, including everything from energy
efficiency to workforce health and safety to board diversity. ESG takes a
market-driven approach to push those companies that are lagging behind to do
better in order to attract investment dollars.
A
recent study conducted by Bank of America Merrill Lynch found that ESG is one
of the strongest signals of earnings risk. By combining ESG criteria with
fundamental evaluation factors (e.g. valuation, growth, and quality), investors
have the potential to grow their average returns by approximately 200 basis
points each year. This same study went onto predict that over the next twenty
to thirty years, an influx of up to $20 trillion will flow into ESG equity
funds.[1]
This means that today’s investors are increasingly looking to ESG performance
metrics when making investment decisions. In addition, interest in ESG
investing is only continuing to rise, with 66% of investors indicating concern
for sustainability disclosures and 77% of millennials saying that they either
currently own or are interested in increasing investment in “impact investing”
vehicles.[2]
Meanwhile, companies are laser-focused on finding new and innovative ways to apply these ESG standards to ensure they stand out in the marketplace. For the real estate industry, this means that developers, real estate investment trust (REITs), and funds are increasingly turning to health as a way to expand their sustainability efforts and differentiate their projects. In support of this movement towards health, GRESB now recognizes projects for achieving certification under Fitwel – the world’s premiere certification system for optimizing buildings to support health. Leveraging real estate to invest in population health has never been more important, and based on the most recent reports, it is about to get a lot more financially advantageous.
Maximizing
Health to Decrease Risk
By
optimizing health, the real estate industry can decrease risk through a couple
of different avenues. On
the commercial side, developers can leverage the emphasis placed on
productivity. The more productive a company’s employees, the greater their
financial return. Today, health is a major barrier to productivity with
work-related injuries, illnesses, chronic diseases, absenteeism, and presenteeism
costing U.S. employers billions of dollars each year. Successful businesses have
realized this connection, with studies indicating that companies that
prioritize the health and well-being of their employees, tend to perform well
and make good investments.[3]
Employers are increasingly seeking out workplaces designed to maximize employee
health, turning to healthy building certification systems like Fitwel for
guidance on attributes to prioritize.
In
residential buildings, the growing demand for health and wellness features has
helped motivate developers and REITs to prioritize strategies linked with
improved health outcomes. Using Fitwel as a guide, developers can boost their ESG
scores and strengthen a project’s bottom line. Thanks to Fannie Mae’s Healthy Housing
Rewards program,
affordable housing projects using Fitwel can even receive a 15 basis point
reduction on their loan. Additionally,
reports indicate that multifamily housing designed to support the health of residents
can reduce turnover, which can save building owners, up to $5,000 in loss of
rental income and maintenance costs per unit.[4]
An
ever-growing number of our residents are prioritizing the health of their home
environments,” said Mark Delisi, vice president of corporate responsibility at
AvalonBay Communities. “By using the evidence-based strategies outlined in
Fitwel, we are able to meet this growing demand while also improving our bottom
line and continuously strengthening our properties.”
Moving
Forward
Developing new and strengthening existing metrics to evaluate the impact of health-promoting buildings on financial return is vital to ensuring its further integration within the ESG movement. In the coming years, as the number of Fitwel certified buildings continues to grow, our understanding of this connection will become increasingly clear. By working with partners like GRESB, that relationship can be translated and quantified, helping strengthen our understanding of how we can use ESG metrics to create the highest performing developments and communities possible.
[3] Grossmeier, J.,
Fabius, R., Flynn, J.P., et al. (2016) “Linking Workplace Health Promotion Best
Practices and Organizational Financial Performance.” Journal of Occupational
and Environmental Medicine. 58(1):16-23.
[4] National
Apartment Association. Breaking Down Turnover Costs. Retrieved from https://
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